The Race of the SROs


-By Nasir Mahmood

The issues of ‘Production Certificate’ and ‘IORC’ as described earlier by Mobile World in its December 2013 report have created a crisis in local automobile industry that badly affected the performance of SMEs, which are backbone of domestic growth and the country’s economy.

It may be mentioned here that Tax-to-gross domestic product (GDP) ratio has declined to 9.0 percent from 14.5 percent in 1998-99, which means a loss of revenue of over Rs 1,400 billion. This was informed to the first meeting of the committee constituted by the prime minister to review the concessionary regime (SROs) held in Islamabad at the Finance Ministry last week.

The review of the concessionary regime of Statutory Regulatory Orders (SROs) aims at removing distortions and disparities created due to the issuance of arbitrary SROs. In his opening remarks Finance Minister Ishaq Dar who is convener of the committee said the committee should review the SROs with an independent and open mind and conduct an exercise in keeping with the national interest.

The meeting was attended by Federal Minister for Planning and Development Ahsan Iqbal, Federal Minister for Commerce Khurram Dastgir, Finance Secretary Dr Waqar Masood, Adviser to Finance Ministry Rana Asad Amin, Industries Secretary Shafqat Naghmi, FBR Chairman Tariq Bajwa and senior officials of FBR and Ministry of Commerce, representatives of Federation of Pakistan Chambers of Commerce, Karachi Chamber of Commerce, Lahore Chamber of Commerce, Khyber Pakhtunkhwa Chamber of Commerce, Board of Investment secretary and senior officials of the federal government.

The finance minister said that prime minister’s decision to constitute this committee and include in it, representatives of relevant ministries as well as stakeholders including business persons is aimed at taking all on board so that the decisions are made with collective wisdom.

Finance minister recalled that in his budget speech he had made a commitment to review the entire concessionary regime. In this connection the finance minister said  the Federal Board of Revenue (FBR) has been working hard to rationalise and streamline SROs and he has been himself holding several meetings. The purpose of carrying out this exercise is to remove distortions and disparities created due to the issuance of arbitrary SROs, he added.

Ishaq Dar said that government will provide protection where required and will not impose any burden where it is not sustainable or impacts the common man.  He assured that the interest of the domestic industry will be protected so that the job market remains unaffected and competitive. The finance minister hoped that the committee will build on the work already carried out by FBR and come out with concrete recommendations.

It would be pertinent to mention here that the FBR has been issuing SROs on various occasions to give concessions in customs duty, income tax and sales tax. According to a survey conducted by Mobile World, there was nothing known as ‘Production Certificate’ till the year 2005, while affairs of the industry were running very smoothly. It was imposed in 2005 just to get hold of the vendors and assemblers in small and medium enterprises without any positive impact or benefit to government or the industry.

 1. amazing fact is that SRO No. 656(I)/2006 in respect of ‘Production Certificate’ for “Exemption of customs duty for OEMs of Automotive sector” was issued on 22-06-2006 but soon after the issuance it was amended about a dozen times during past seven years. The latest amendment was made on 29-10-2013, (Table-1).

This is called a useless exercise just wasting time and money of the SMEs. This certificate is valid for one year but it is handed over by EDB authorities after the loss of enormous time that makes it worthless for import of parts or material within  specified time period. Hence, it is advised that govt. should abolish this condition for SMEs of the automobile industry through its new Auto Policy.

2. The other major issue is IORC (Input Output Ratio Certificate), which is not allowed for SMEs by the Engineering Development Board. It is restricted to only big guns of the automobile industry due to vested interests and fringe benefits for them. Initially it was called a ‘Survey Certificate’ being issued by the FBR. In year 2005 its authority was shifted to Engineering Development Board.

Under the head of “Exemption of customs duty for vendors of Automotive Sector” its SRO No. 655(I)/2006 was issued on 22-06-2006 but during the course it was amended more than six times while its last amendment was issued on 01-08-2013, (Table-2).

This is a clear indication of non-serious attitude by the authorities. According to reports it has been used as a massive tool of corruption as already explained in report of December 2013 by Mobile World. Therefore, this undue facility for the tycoons must be withdrawn in the new auto policy.

3. The third most hated system is the approval of ‘Importable Lists’ by EDB, which is carried on since last 20 years. This is very mysterious system that includes a total of 300 parts for motorcycle assemblers and about 5,000 parts for car assemblers. Most of the parts in this list are manufactured by local vendors but even then EDB has included these parts in importable lists that smell bad. For example; out of 300 numbers about 150 parts are the hardware items comprised of small nuts, bolts and washers or paper packing etc. having a very small value in Paisa or Rupees but EDB has mentioned these items in importable list for unknown reasons.

In this regard EDB issues another “A Max List” just to show few items that are indigenized (actually submitted by Big Three OEMs of Japanese origin) and this list is meant for additional duties. Its original SRO No. 693(I)/2006 under the head of “Levy of additional Customs Duty on Import of Specified Goods” was first issued on 01-07-2006 but since then there were 13 amendments (SROs) made in this regard. The last amendment was issued on 29-10-2013, which is so confusing, Table-3).

According to local assemblers there are only 19 major importable components that should be mentioned in ‘Importable List’ of motorcycles but EDB authorities do not accept their plea and allows a fraudulent list for importers of motorcycle and four wheelers just for the sake of wasting precious foreign exchange of the country for worthless items.

In addition to this, it has over-loaded the SMEs by involving them in unnecessary paper works & expenses to submit with EDB round the year. This futile exercise was not only wasting the national resources but precious time and money of the SMEs.

-Published on pages#-18-19 in January-2014 edition of MOBILE WORLD Magazine